Clock ticks on bonds for development

Wisconsin developers are lobbying Congress to extend a year-end deadline to use nearly $3.2 billion in unspent, federal tax-free development bonds.

Wisconsin is among seven states where developers can use Midwestern Disaster Area Bonds, which were approved in 2008 to help areas recover from storms and floods. But the total $3.83 billion of bonds far exceeded businesses’ demand, with Wisconsin companies using $663.4 million by the end of September.

NAIOP Wisconsin, the Commercial Real Estate Development Association, is trying to buy more time for the program, said executive director Chris Korjenek. Members have met with some Wisconsin congressional delegates, she said, and are trying to recruit NAIOP’s national office to convince Congress to extend the Dec. 31 deadline to use the remaining bonds.

The industry got off to a slow start using the disaster bonds because of the slow economy, Korjenek said. Developers should have more time to take advantage of the billions in unspent bonds, she said.

“We know that the economic environment for a long time wasn’t such that we could use the bonds and now development is starting to happen again,” Korjenek said.

Wisconsin Housing and Economic Development Authority officials in April discussed their support for extending the bonding program in Washington, D.C., during a National Council of State Housing Agencies conference, said WHEDA spokesman Kevin Fischer.

The state’s leftover bonds are not unique. Illinois, for example, received approval for $1.5 billion in bonding and used about $210 million by Oct. 1.

Developers and businesses can raise money for projects by selling the disaster bonds to investors, which in return enjoy federal tax breaks. Unlike other federal bonds limited to affordable housing or industrial projects, the disaster bonds can be used on anything from telecommunication arrays to hotels. Projects that have received the bonds include the 200-room downtown Milwaukee Marriott, the Milwaukee Water Council’s research and business accelerator building and J.F. Ahern Co.’s facility in the Menomonee Valley.

Many companies are trying to beat the year-end expiration of the program. Lynda Templen, shareholder and vice president of legal services for Milwaukee law firm Whyte Hirschboeck Dudek SC, said she has clients with a combined 15 projects that would use $200 million of the bonds.

“We’re approaching $700 million, and I have a couple $100 million others in the works, so we might fall a little shy of the $1 billion mark,” she said.

With the deadline still in place, Templen is working to get government approval for bond requests and lock in investors before the new year. Projects include Gaco Western’s 85,000-square-foot expansion in Waukesha, Wangard Partners Inc.’s development of a 45,000-square-foot Grafton office for Regal-Beloit Corp., and Lake Country Manufacturing Inc.’s 81,000-square-foot facility in Oconomowoc.

Templen’s other pending bond deals in Wisconsin include a roughly $50 million bond request for the redevelopment of the Edgewater Hotel in Madison, $25 million for a University of Wisconsin-Platteville dormitory and about $7.5 million for the renovation of the Park Plaza hotel in Oshkosh.

David Ryan, a partner in Foley & Lardner LLP’s Milwaukee office, said he still has three disaster bond deals in the works, but declined to provide details about the projects.

“If you’ve got an established company that has a credit arrangement with a bank, there’s still time,” he said.

Ann Murphy, managing partner of the Milwaukee office of Quarles & Brady LLP, said her attorneys also still are processing requests.

Without an extension, there’s about four weeks left for companies to request government approval to use the bonds, Templen said. Most of the requests are going to municipalities, which must give a 30-day notice before meeting to consider approval.

“If we haven’t gotten an initial resolution in by early November for a project, it’s probably not going to happen,” she said.

There are no pending bond requests at WHEDA, which also has authority to approve the bonds, Fischer said. The authority will not consider any more applications, he said.

Businesses got off to a slow start to using the bonds, Foley & Lardner’s Ryan said. One issue that had to be worked out is whether projects using them would be required to have a direct connection to the national disasters the bonds were to address, he said.

One example would be whether a hotel developer would need to show that another nearby hotel was damaged or destroyed by a flood. In the end, Ryan said, the federal government did not enforce such a requirement.

But regardless of a slow start, the 30 southern Wisconsin counties where the bonds can be used could not conceivably use $3.83 billion, Ryan said.

“It’s a little of both,” he said. “Certainly nobody expected the entire allocation would be used. Every bit of economic development in the counties probably wouldn’t have got to that number.”

Korjenek said NAIOP members have not asked for a specific date for an extended deadline. Future lobbying efforts include plans to set up a meeting with Iowa Sen. Chuck Grassley, a member of the Senate Committee on Finance. That could occur in mid-October during a development conference in Washington, D.C., she said.

“There have been several meetings taking place over the past several months on the issue to try to get some traction,” Korjenek said.